Acceptance is a Big Deal in Software License Agreements

A key event in a software license agreement is when the buyer accepts the software. The reason is that date usually triggers the start of the warranty period, the start of support, the term of a term license, and the clock on payment. Variations on these trigger dates abound, but acceptance is a normal triggering event in software license agreement.  

SEMI ANNUAL NOTE ON USAGE. This blog uses seller and buy for software agreements. There are two reasons.  1) Buyer and seller are easier to read, write and understand than licensee and licensor, and 2) under the uniform commercial code, that is what the parties are called.   

Acceptance is the time when the software license transfers to the buyer and significant obligations begin. Before acceptance, a buyer may reject the software because it does not conform to the agreement. At that point, no amount is due and the seller must show the software conforms or repair or replace the software.

After software is accepted, the buyer may still claim a problem with the software but the buyer must show the software is nonconforming. From an accounting point of view, normally once software is accepted, the seller can book the deal as revenue and the buyer must show the liability. What can be gleaned from all this is the seller want a fast acceptance while the buyer wants a slow acceptance.   

How is the software accepted. This issue is usually divided between commercial off the shelf(“COTS”) software and custom or customized software. With COTS software there is no reason for a lengthy acceptance period. The software is often made immediately available at an FTP site and the buyer can download and install the software. Since the software normally works, a buyer does not need to inspect the software to see if it conforms to the manual. A short time may be appropriate to verify that the software received was what was ordered. But further delay is only used to delay starting the payment clock. 

Since payment is often triggered on acceptance, if payment is due 30 days after acceptance, then the seller wants acceptance on the email of the password to FTP site. Buyer wants 30 days after acceptance. That way instead of payment in 30 days, payment is due acceptance period plus 30 days. That can be a hard date to pin down.  

For custom or customized software, acceptance is another story. The parties need to develop a comprehensive software requirements document and acceptance needs to satisfy the agreed software requirements. But, while this suggests a lengthy process, often it is not. The reason is the parties have been dealing with the development and customization for months and have a good handle on whether the requirements are met. 

The acceptance terms need to be detailed so each party knows when the software is accepted. A seller wants terms such as the software is accepted within 10 days of delivery unless buyer rejects in writing with details of the nonconfomity. Buyers want a term such as the software is acceptance when, in buyers sole discretion, the software satisfies buyers requirements. Some point between these position may practically resolve the issue. One good term is to state that the software is deemed accepted if put into commercial use. That way, you do not have a buyer that refuses to accept because of some small flaw but is using the software anyway.